Much like corporations and charity organizations, condos, co-ops and HOAs across the nation are helmed by groups of residents who volunteer to serve their communities, and who are elected to their post by their neighbors. This is of course the case in Florida, where multitudes of retirees and early retirees choose to resettle. These folks are healthy and active, mentally and physically, and it is not surprising to find talented individuals volunteering for board positions in their new communities.
While a volunteer may have retired from a successful, demanding career, there are many situations in which an HOA's board of directors may need an expert’s advice in law, finance, or corporate administration. Florida state laws in general, and association laws in particular vary from other states as well. This overall lack of specific experience or knowledge may lead a perfectly well-meaning board to make a decision with serious legal ramifications, putting the board at risk for lawsuits both within and outside the community.
Avoiding Legal Blunders
What is the best way for a board to avoid a legal foul when deciding on a course of action for the community? “Use your professional resources,” says Ryan D. Poliakoff, senior counsel in the Community Associations practice group of Sachs Sax Caplan in Boca Raton. As senior counsel, Poliakoff most often finds that boards fear using the association’s attorney services for a variety of reasons. Besides budget concerns, a board may not realize when it's time to call for professional consultation. Poliakoff points out the importance of calling upon the right resource for the need at hand, whether it be a property manager, bookkeeper or an attorney. “An elected board creates and defines policy but these professionals have specific knowledge on liability and risk for complex issues,” he says.
Lourdes Ferrer Lieberman, an attorney and founder of Ferrer Law Group in Weston, works with all aspects of community association law, and sees the same reluctance for boards to seek expert advice. “Many times a board doesn’t know what they don’t know—but as they say, ignorance of the law is no excuse,” she says.
Thomas R. Slaten Jr., managing shareholder of the law firm of Larsen & Associates, P.L. in Orlando, agrees with Poliakoff and Ferrer. “All community association boards have good intentions, but it is not always easy for a board to carry out their well-meaning plans. Forgetting to follow procedures buried in the association’s governing documents or state statutes are the most common legal mistakes that can derail a board.”
It's Not Personal
Ferrer also cautions boards to be aware if emotions are playing a part in the decision-making process. “When a board doesn’t follow through equally, selective enforcement of policy may become a legal issue. If you are personally involved, abstain yourself from voting.”
“Some association bylaws contain restrictions regarding old quorum and meeting provisions that have been superseded by the state statutes, as well as arbitration and court decisions,” says Slaten. “Failure to follow these restrictions or keep up to date on new ones can invalidate a board’s decisions and sometimes expose an association to unwanted liability.”
A community in North Central Florida recently lost an HOA lawsuit for a combination of the reasons cited by Poliakoff, Ferrer, and Slaten. The Pasco Tribune section of the Tampa Tribune reported the story on March 26, 2014. Failure to seek legal counsel, emotional involvement, and out-of-date documents all contributed to a loss of time and money in a case that reached the Florida Legislature’s state Senate.
Initially a disabled resident brought suit against his homeowners association for holding its meetings in an area not accessible by a wheelchair. The resident won an emergency injunction forcing the HOA to meet in an accessible location but then a second judge dismissed the injunction based on current law, and ordered the resident to pay the legal fees. When the board also assessed the community for legal fees, it was discovered the HOA was operating with expired covenants, and had been since before the first court date.
As a result of this high-profile case, Sen. Wilton Simpson, D-18, chair of the Senate Community Affairs Committee, introduced Bill 1450. The bill which requires private HOAs to meet in areas accessible to all physically handicapped persons, was passed by the Community Affairs Committee in March 2014 and amended and passed by the Senate 40-0 on April 11, 2014. While the abovementioned case had no winners, a new bill is now on the books as another example of how important it is to get good legal counsel upfront when difficult decisions are required.
Ferrer recalls an incident when a board decided to exclude a particular service at community expense. An amendment was drafted and included in the community documents. When a resident required the service, and the document was presented, it was discovered it had never been signed, and was therefore not valid or legal. A brief review by the community attorney could have prevented the costly oversight.
“Liability and risk are complex issues,” says Poliakoff. He likens running a community to running a business with a multi-thousand—or even million-dollar—in the case of some of the larger developments—budget. “Part of the business of doing business is to be proactive; don’t be penny-wise and pound foolish.”
Poliakoff feels it is important to show the board a breakdown of legal expenses, and to educate the members on the differences in upfront cost versus after-the-fact damage control. “They are paying for specialized knowledge and years of experience,” he says. “If a board is going to spend several thousand dollars on a project, it is a good investment to spend a few hundred dollars and have the contract reviewed before it is signed.” He cautions boards on the fact that contracts are generally written to favor the presenter. “Be sure your interests are protected,” he says. “After the fact it's hard—if not impossible—to negotiate a better deal.”
Slaten also encourages boards to spend a few dollars for good advice, rather than pay the cost of legal entanglement. Ferrer concurs. “Be proactive, not reactive, and know what you are receiving for your fees,” she says. “Not all attorneys bill by the hour, or per phone call.” She also encourages board members to know what is and what is not authorized. “If the governing documents do not authorize collections, don’t do it,” she says.
Of course, honest mistakes are going to happen occasionally, no matter how carefully or conscientiously a board approaches their duties and decision-making. Misinterpretation of community documents and even negligence can be repaired—but the key word here is 'honest.'
“Once a mistake is noticed, don’t engage in a cover-up, advises Ferrer. Take positive action and fix the problem; sometimes a simple phone call can clear up any confusion and prevent a negative action.” Ferrer compares timely board intervention to a medical scenario. “When you treat an illness in time, it is easy to heal, but left untreated, it may be impossible to achieve a healthy outcome.”
Florida statutes protect board members for mistakes made in good faith, but board members may be held liable for violating a criminal law, deriving improper personal benefits from a transaction, or a reckless act or omission committed with malicious intent for human rights, safety, or property. Community associations' articles of incorporation require indemnity for board members with few exceptions, and directors and officers liability insurance should also be provided to fill in gaps and allow board members to make decisions in good faith without fear of getting sued as a result. “If you are going to volunteer your time and talent, it is appropriate to insist on directors and officers coverage,” says Poliakoff.
Keep it Friendly
Just as most for–profit businesses consult professionals before making big decisions, so should community associations. Experts are available in every field—managers, accountants, insurance agents, and engineers can all supply a wealth of accumulated knowledge. A well-run board will do their homework, and then consult with the association’s attorney before signing off on any major contract or program. Those dollars spent in proactive decision-making may well save thousands of dollars in legal fees at a later date.
Slaten encourages boards to remember that for most residents, their home is their most important investment. “If a community association’s board takes action designed to protect the community, its homes, and its members’ financial interests, the board should experience few problems.”
Anne Childers is a freelance writer and a frequent contributor to The South Florida Cooperator.
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